Agribusiness Library LESSON 060100 Choice

Objectives 1. Distinguish between wants and needs. 2. Explain how scarcity necessitates choice, and identify factors that are considered when individuals or organizations make choices. 3. Examine the concept of utility, and describe the types of utility.

Terms marginal utility needs opportunity costs rational decisions total utility utility utils wants

What is the difference between a want and a need? Economics recognizes that there are limited resources to satisfy our unlimited desires or wants. Therefore, individuals will be forced to make tradeoffs among alternatives because of limited resources.

What is the difference between a want and a need? A. Individuals might desire additional items beyond their needs to satisfy additional preferences; these items are wants. Individuals will be willing to give up these wants when the needs have not been met. B. Individuals cannot live without some basic needs—requirements for life, such as clean air, food, water, clothing, and shelter.

What is the difference between a want and a need? C. Deciphering between needs and wants can be somewhat difficult and might require judgment. 1. For example, all people need food. Not all food items, however, are considered needs. Some individuals might want to have steak every night, but their food needs could be just as easily met with chicken.

What is the difference between a want and a need? C. Deciphering between needs and wants (cont’d) 2. As another example, all people need some shelter from bad weather. A small, single room can meet the individual need for shelter, but many people want larger homes.

How does scarcity influence choice How does scarcity influence choice? How do individuals or organizations make choices among alternatives? Scarcity and choice factors A. Opportunity costs are a measure of the value among choices. The opportunity cost of a decision is the value of the next best alternative that must be given up.

How does scarcity influence choice How does scarcity influence choice? How do individuals or organizations make choices among alternatives? B. When an individual chooses something, he or she implicitly gives up choosing something else. For example, when you choose to spend $1 on a video game at the arcade, you cannot also spend that same dollar on candy.

How does scarcity influence choice How does scarcity influence choice? How do individuals or organizations make choices among alternatives? C. Opportunity costs recognize that there are substitutes for all goods and services. D. The price of anything is related to the other choices available. E. Rational decisions (sensible choices) rely on the principle of opportunity cost.

What is utility? What are the types of utility? Utility and its types A. Utility is the term in economics used to indicate the happiness or joy that individuals derive from consuming goods and services.

What is utility? What are the types of utility? B. Types of utility 1. Utils are imaginary units that measure the utility derived by individuals consuming goods and services.

What is utility? What are the types of utility? 2. Total utility is the sum of the utils derived from all the goods and services consumed. It is a measure of your total happiness from consumption.

What is utility? What are the types of utility? 3. Marginal utility is the change in total utility gained (or lost) from the consumption of an additional unit of a good or a service.

Review Name three basic needs of individuals. How might an individual confuse needing a steak when they are hungry? What term is defined by the measure of the value among choices? Name the three types of utility.